Military homeowners short sale | Brian Bean and Tim Hardin | Riverside Short Sales | Mortgage Forgiveness Expiring
New rule shields military homeowners in short sale
For active military homeowners who are redeployed, Fannie Mae and Freddie Mac have their backs.
The Federal Housing Finance Agency, which oversees the government-sponsored enterprises, last week announced guidelines aimed to protect service members who receive a “Permanent Change of Station” order.
Military homeowners who have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac can do a short sale on their home without missing payments and without fear of having to pay the outstanding loan balance.
The new guideline is especially important for military personnel with high-level security clearances, which can be revoked in a foreclosure or even after defaulting on a debt.
“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction,” Edward DeMarco, acting director of the FHFA, said in a release. “These Fannie Mae and Freddie Mac policy changes, in combination with related guidance last fall, should now provide military homeowners with access to the immediate and automatic full range of foreclosure alternatives.”
The GSEs last year included permanent redeployment among its valid hardships for a loan modification or short sale.
THE NEW GUIDELINE
According to the latest guideline:
- Military members must have received a PCS order.
- The home to be sold must have been the owner’s primary residence.
- The home must have been purchased on or before June 30, 2012.
- The home value must be less than the outstanding loans.
- The homeowner does not have to be in default.
The new guideline also prevents the GSEs from pursuing the homeowner for the balance of the loan or requiring a contribution as a condition of a short sale, though most California homeowners are already protected by anti-deficiency laws.
DeMarco’s announcement is the latest rule change to help protect military members, who often are forced to relocate or go into battle and must deal with multiple homes hundreds or thousands of miles apart.
The Servicemembers Civil Relief Act shields active duty military members from foreclosure on mortgages backed by HUD for at least nine months. And the Housing and Economic Recovery Act of 2008 added the same protection for loans owned or guaranteed by GSEs.
Want to know if your mortgage is backed by Fannie Mae or Freddie Mac? Call us today at 951-778-9700 to find out.
BANKS PREFER SHORT SALES
Why are Fannie and Freddie finally addressing short sales? It’s all about the money.
Banks prefer short sales because they net 12 percent to 25 percent more than from a foreclosure. It takes time and money to seize, repair, maintain, market and resell a property. And as many as half of loan modifications redefault within the first year, later turning into foreclosures and short sales.
For homeowners, a short sale fends off a financially devastating foreclosure, limits damage to credit, and puts them back in the housing market much more quickly as an able buyer – before home values again shoot through the roof.
More importantly, a short sale allows a homeowner to exit their house on their own terms, with dignity intact.
TAX EXEMPTION EXPIRING
But the GSE guideline comes just in time for many military personnel. Though they may not face deficiency or default, a short sale still could result in a big tax bill for homeowners who finish too late.
The federal Mortgage Forgiveness Debt Relief Act of 2007 and California’s Conformity Act of 2010 are set to expire at the end of this year. Both laws exempt some homeowners from paying income taxes on debt cancellation on a primary residence, as long as the money was used to buy, build or improve the residence.
When a home goes to foreclosure or short sale, the loss to the bank (or debt forgiveness) is considered income to the homeowner. The bank will report that income to the Internal Revenue Service on a 1099 form. And a taxpayer could owe $15,000 to $35,000 in taxes on a $100,000 loss to the bank.
Because short sales, loan mods and foreclosure actions can stretch out for months, homeowners who wait too long risk finishing too late to benefit from the exemptions. And as the expiration nears, homeowners are likely to flood the system, increasing inventory, straining bank negotiators and lengthening the approval process.
Do you qualify for these tax exemptions? Call us today at 951-778-9700 to find out.
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